If the expected inflation rate was 7 percent and the actual inflation rate was 3
ID: 1178161 • Letter: I
Question
If the expected inflation rate was 7 percent and the actual inflation rate was 3 percent, then
a.
borrowers gained in real terms at the expense of lenders.
b.
lenders gained in real terms at the expense of borrowers.
c.
borrowers and lenders were not affected.
d.
the government gained because it collected more in taxes.
a.
borrowers gained in real terms at the expense of lenders.
b.
lenders gained in real terms at the expense of borrowers.
c.
borrowers and lenders were not affected.
d.
the government gained because it collected more in taxes.
Explanation / Answer
lenders gained in real terms at the expense of borrowers.
as the rate of interest charged had considered the expected inflation rate of 7% whereas the inflation rate turned out to be 3% hence the rate of interest charged in turn became even more expensive.